Criminalising Keynesianism? Not why Cameron deployed his veto!

The dust won’t settle from last week’s bust-up in Brussels for some time, with many describing David Cameron’s isolated refusal to take part in EU Treaty reform as a fundamental change in Britain’s relationship with the EU. Quite a few on the left are judging Cameron’s decision as – while diplomatically inept and for all the wrong reasons – the right decision. He’s not the only one who doesn’t see Treaty reform as what Europe needs, although what we want to see from Europe is a strategy for growth rather than, as some have described it, the criminalisation of Keynesianism.

And the deal is unlikely to be a crucial one anyway, because it doesn’t address the problems that actually face Europe and the rest of the developed world. ETUC General Secretary Bernadette Segol said:

“Europe needs a social compact, guaranteeing non-intervention of the EU in wage setting mechanisms, the autonomy of social partners, protecting and promoting our social model. ETUC will demand that a social progress protocol be included in any revision of the Treaty or in any new Treaty.”

What the EU26 (if consultations back home result in countries like Sweden and Hungary sealing Britain’s isolation) have agreed to is a series of changes that will make it more and more difficult for EU member states to grow their way out of recession, insisting on budget deficit limits and centralised control that some have suggested offend against democratic principles (because they effectively limit what electorates can tell their govermments to do with the economy) as well as Keynesian economic theory. They agreed to seek to embed these principles in Treaty change and reform of member states’ constitutions at some time in the future, although it is difficult to see how the British Government can change their position, and it is quite likely that various countries would have to hold referendums that would see the moves rejected.

But has the UK’s relationship with the rest of the EU really changed fundamentally? Clearly Cameron has been isolated, although it’s as likely that the rest of the EU will now make concessions to draw the UK back into the fold as extract revenge, as some have warned. And the main demand that Cameron advanced – a sort of permanent get-out-of-jail-free card for the City of London’s financial interests may not stay such a sacrosanct part of UK Government policy when people who aren’t in such hock to hedge fund donors replace the current Prime Minister (those donors may even abandon him first, if the EU26 proceed to implement a financial transactions tax that the City cannot evade, as now seems more likely than ever).

The deployment of the British veto – although likely to be popular in opinion polls in the short-term – has inevitably not addressed the insatiable appetite among Tory sceptics for a referendum on UK membership of the EU, nor made it easier for Cameron to bind the traditionally pro-EU Liberal Democrats to coalition. It’s quite likely that this will be viewed in retrospect as yet another Tory Maastricht moment: which did more damage in the long run to the Conservatives than it did to Britain’s unendingly ambiguous relationship with the EU.

None of this last week’s drama will resolve the essential problem of the European Union and the wider world economy, which will remain a deficit in demand and an insufficiently regulated financial system, rather than public sector deficits that are to be targeted by widespread and now enforced austerity. If Europe continues to fail to grow, or even falls back into a general recession, governments which voted for the deal on the table last Thursday night may find their electorates teach them that there is nothing as ephemeral as a political deal, and throw the growth deniers out. ETUI senior researcher Andrew Watt has set out what an alternative EU economic strategy could look like.

Written by Owen Tudor

I’ve been the Head of the TUC’s European Union and International Relations Department since 2003 and have worked at the TUC since 1984. I’ve been a member of the Health and Safety Commission, the Civil Justice Council, the Social Security Advis…

I would be prefer to be worse off economically then have any other nationality- German, French, Dutch whoever tell my country how to run its affairs. Im sure any proud person would feel the same. Britain has governed herself since 1066- that is the real principle.

It’s difficult to know where to start. First, agreeing things at multinational level, like the EU, is not one country telling others how to act. Second, what happened last Thursday night was that the UK asked for unilateral power over what everyone else in the EU might want at some stage in the future to do. Third, “Britain” has not governed herself since 1066 because the country did not exist that year (when England was conquered by the Normans who have, effectively, owned the country ever since), but was created out of the conquest of other countries like Wales, Northern Ireland and – not conquered but coerced into the Act of Union – Scotland.

Owen: I agree with just about everything you say. But what Merkel has done is not so much to ‘criminalise Keynesianism’ as to show her total ignorance of basic national accounting identities; ie, that I = S = Sd + Sg + Sf. A moment’s though shows that for Sg = 0 (no budget deficit) if I-Sd (domestic I minus savings) is negative, then Sf (foreign savings) must be negative; ie, there must be a CA surplus. Otherwise, Nat Income must fall to restore equilibrium. This is first year macro!

Thanks George. I’m assuming that Merkel’s motivation is still just to keep the German electorate on board, by deploying the myth that everyone can be Germany. What’s really depressing about that isn’t the level of economic understanding of the German Chancellor, but the reduction in economic literacy among the electorate, who – according to my German friends – used to be the best economically informed in Europe!